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Activist Supreme Court Makes Government Bigger Print
Thursday, 19 January 2012 05:21

The NYT reported on a Supreme Court ruling that retroactively granted copyright protection to foreign works that had previously been in the public domain. As Justice Breyer argued in dissent, this action appears to exceed the constitutional authority given to Congress, which ties copyrights to a specific public policy goal: "to promote the progress of science and useful arts."

In this case, since the copyright is explicitly being applied retroactively to work that has already been produced, it cannot possibly be viewed as providing incentive to develop the material. This means that the government is assigning a monopoly to items that were formerly in the public domain and available at no cost. It is prepared to arrest people and throw them in jail if they don't respect this government granted monopoly.

Given the large number of political groups complaining about activist judges and big government intervention into people's lives, it would have been useful to include some of their views about the court's action. Perhaps this can be addressed in a follow-up piece.

The NYT, SOPA and Jobs: Where Was the Truth Vigilante? Print
Thursday, 19 January 2012 04:29

The NYT's truth vigilante was apparently sleeping when the paper printed without comment the Motion Picture Industry's claim that the country lost 100,000 jobs due to on-line "piracy." The truth vigilante would have pointed out that the money that consumers do not spend paying for copyright-protected work is available to be spent in other areas. The payments for copyright protected items have the same effect on the economy as a tax, they pull money out of the economy. While some of this may end up supporting more creative work, it is likely that most would simply end up as greater profits for the industry and larger royalty checks for a small number of highly paid performers.

By contrast, the requirements of the Stop On-Line Piracy Act are a good example of "job-killing" government regulation. They would impose additional costs on intermediaries which would be passed on to consumers and slow technological progress.

It is incorrect to use the term "piracy" in this discussion, even though the entertainment industry has paid lots of money to get it accepted. The items in question may not be in violation of the law in the countries where they are posted. In that case, the posting cannot properly be termed "piracy." It would be more accurate to use the neutral term "unauthorized copy."  

NPR Doesn't Like the 35 Hour Work-Week in France Print
Wednesday, 18 January 2012 05:46

Morning Edition did a segment this morning on the 35 hour work week in France. To show how bad the 35 hour work week is, the segment told listeners that hospital workers had accumulated 2 million days worth of overtime, which they will have to take as days off by the end of 2012. It warned that this would force hospitals to shut down for months at a time.

Most listeners would have little ability to assess the risk from taking this many days of leave since they probably don't have much idea of how big France's hospital sector is. In the United States the hospital sector employs 4.8 million workers. If the sector in France is proportional to the size of its employed workforce, then France has approximately 1.2 million workers in the hospital sector. This means that if everyone uses their days off (workers in the U.S. often lose days of paid leave), they will have to take an average of 1.7 extra days off in 2012. Is that scary or what?

The piece also included the completely unsourced assertion that few people believe that the 35 hour work week has led to increased employment by dividing up jobs. The people who do not believe that the shorter work week created jobs must believe that the 35 hour work week led to sharp increases in productivity. If workers can produce the same amount in 35 hours as they did in 39 hours (the previous standard work week in France), it would imply an 11 percent increase in productivity.

This would be an astonishing gain in productivity. Economists view productivity as the primary determinant of living standards. Productivity growth is the whole point of all those great plans for tax cuts (usually for rich people) that people like Mitt Romney, Newt Gingrich, and Paul Ryan keep throwing on the table. If NPR's sources are correct in their view, and shorter work weeks lead to massive gains in productivity (none of the tax cut bills are projected to lead to productivity gains of even one-fifth this size), then shorter work weeks could be a great way to both increase equality and improve growth: a classic win-win situation.   

[Addendum: The transcript is now available. It seems that the 2 million days referred to a single hospital in Paris, not the entire hospital system.]

[Addendum 2: Andrew Watt has a more serious discussion of the impact of the 35-hour work week in France.

Economics Lesson for Senator Leahy Print
Wednesday, 18 January 2012 05:31

Senator Patrick Leahy, the sponsor of the Protect Intellectual Property bill, claimed that if Congress rejected his bill it would "cost American jobs." This is almost certainly not true.

Insofar as individuals are able to able to gain access to copyrighted material for which they would otherwise have to pay, they are able to save money. This if effectively the same thing as a tax cut, putting more money in their pocket, the vast majority of which will be spent on goods and services in their community, thereby creating jobs.

If they are denied access to this material, most would not be paying the copyright-protected price. Insofar as some of these people would pay the copyright protected price, it would mean some additional revenue to companies like Disney and Time-Warner. Most immediately this would mean higher profits for these companies. It may have some marginal impact on their employment, but the jobs lost from the money taken away from consumers would almost certainly be larger than the jobs gained by allowing these entertainment companies to gain more revenue. This is similar to imposing quotas on imported clothes. This will lead to more jobs in the textile industry, but fewer jobs everywhere else.

Senator Leahy's bill will also impose additional cost on search engines like Google and intermediaries like Facebook. These costs are like a tax on the Internet. They pull money out of the economy and make these providers less efficient.

The NYT should have included this sort of economic analysis along with Senator Leahy's comments.

Numbers in Space on Taxes and Spending Print
Wednesday, 18 January 2012 05:12

The NYT went overboard in an effort to present numbers in no context whatsoever when it discussed efforts to pay for the extension of the payroll tax cut for the rest of 2012. The article discusses the cost of various spending cut proposals without putting them in any context whatsoever, including even the number of years involved.

For example, it told readers that requiring a Social Security number to claim the child tax cut would save $9.4 billion according to the Congressional Budget Office. The article never gives a time period over which these savings would be realized.

Presumably, this is a 10-year estimate. Over this period, the federal government is projected to spend more than $43 trillion, so these savings would amount to a bit more than 0.02 percent of projected spending over this period. It would be helpful to include some context when presenting these numbers, otherwise they have little meaning to readers.

The Non-Mystery of Slow Job Growth Print
Tuesday, 17 January 2012 20:31

The Wall Street Journal had a bizarre article about capital investment and robotics to explain the slow job growth in this recovery. There actually is a much simpler explanation, it's called "slow growth."

Productivity growth has averaged close to 2.5 percent since 1995. That means the economy must grow at a 2.5 percent rate just to keep labor demand constant. If it grows slower than this, we expect the demand for labor to fall and the number of jobs to decrease or the average number of hours worked to fall.

Since the recovery began in the summer of 2009 GDP growth has averaged just under 2.5 percent. These means that we should not have expected the economy to create any jobs over this period. In fact, it has added almost 1,500,000. Insofar as there is a mystery, given the weak growth of the economy over the last two and a half years, it is why the economy added so many jobs.

Why Should People in the United States be Concerned About Getting Lower Cost Engineering Services? Print
Tuesday, 17 January 2012 20:15

The Wall Street Journal wants us to be worried that we will be paying less for our shoes, clothes, and engineering services. Actually, they only want us to be concerned about the last of these three, although it never tells us why.

It had an article the point of which is to warn readers that engineering is increasingly being outsourced to Asia. This may be bad news to people who hope to work in engineering, but for the rest of us, it means cheaper products, just as buying clothes and shoes manufactured abroad meant cheaper products.

The outsourcing of manufactured jobs is of course bad news for manufacturing workers and there are many more people who either work in manufacturing or could potentially if the jobs were there. In other words, the WSJ would have a much more compelling case if it warned us about the risk of losing jobs in clothing and shoe making to Asia than it does with engineering. For the overwhelming majority of people in the United States, this should mean an improvement in living standards.

Is an Identity Crisis Worth 10 Percentage Points of Unemployment? Print
Tuesday, 17 January 2012 06:05

That's the question that the Washington Post is implicitly raising for readers in its discussion of Iceland's recovery from the recession. The piece notes that Iceland's unemployment rate is 7.0 percent. It doesn't make the comparison to other crisis-afflicted countries which have unemployment rates well in the double-digits, with Spain leading the pack at 22 percent.

In general the piece does paint a reasonably positive picture of Iceland's economy, but it warns readers that:

"It’s tempting to conclude that this country of 318,000 people simply handled the crisis more adeptly than others, like a pick-your-own-ending book in which Icelanders chose correctly. There is a sliver of truth in that, but the full story is more complicated. That’s partly because the circumstances in Iceland are far different than in the United States and Europe, but also because such a simple explanation ignores the anger, the angst and the struggles that remain here, hidden barely beneath the surface.

"Iceland has weathered the worst of the financial crisis, but its society has yet to solve the identity crisis that followed in its wake."

If Post readers were informed of the situation in the other crisis-afflicted countries, they would be able to put Iceland's identity crisis in context.

Inefficiency and Corruption: The Predictable Result of Patent Monopolies Print
Tuesday, 17 January 2012 05:53

The NYT reported on a new government regulation that will require drug companies to disclose payments they make to doctors. The reason is to expose potential conflicts of interest that could influence their research, public statements, and prescription writing.

It would be helpful to include some comment from economists on this new regulation. The sort of corruption associated with patent protection for prescription drugs is exactly what economics predicts would result from a system of government-granted monopolies that allow drug companies to sell their product at several thousand percent above the free market price. 

And Where Did the Complexity Come From? Nocera on Financial Reform Print
Tuesday, 17 January 2012 05:34

Joe Nocera's column today argues that the financial industry may have a legitimate complaint when it says that the Dodd-Frank financial reform bill is too complicated. While the law is complicated in many areas, it is important to recognize that in many cases the industry was the source of the complication.

For example, there was a widely held view following the experience of AIG, which had issued hundreds of billions of dollars worth of credit default swaps outside of the purview of any regulator, that derivatives should be traded either on exchanges or through clearinghouses in order to increase transparency. Rules to this effect were included in Dodd-Frank.

However, the financial industry wanted to preserve the option to trade some derivatives over-the-counter. Therefore they included a series of exemptions in the legislation.

These exemptions are quite complicated. In contrast, a blanket requirement that derivatives had to be traded through a third party would be relatively simple. However it was the industry that added the complexity.

There are many other areas where a similar story could be told. That is why it is hypocritical for someone like J.P. Morgan CEO to complain about the complexity of the legislation. 

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.